Regulating labour management in
small Ž rms
Susan Marlow, De Montfort University
Human Resource Management Journal, Vol 12 No 3, 2002, pages 25-43
There is a relative paucity of evidence on the management of labour in smaller Žrms.
R esearch that has been undertaken, while recognising the heterogeneity of the sector,
does note the prevalence of informality regarding employee relations. Such informality
could be challenged by the increasing regulation of the employment relatio n ship
following the election of successive Labour governments since 1997. To illuminate this
discussion further, evidence drawn from a study of employment regulation is offered. A
number of smaller Žrm owners and their employees were interviewed to ascertain their
views on the impact of regulation on the employment relationship. Owners were largely
resistant to it but felt they could accommodate changes with relatively little disruption
to their existing approach to labour management. Meanwhile, most employees felt the
effect of regulation would be muted due to their position as smaller Žrm labour.
C o n tact: Susan Marlow, Department of HRM, De Montfort University, The
Gate way, Leicester LE1 9BH. Email: [email protected]
I
t is well documented that the study of labour management in smaller Žrms remains
somewhat constrained in both depth and scope both by those engaged directly with
the sector and within mainstream employee relations re s e a rch (Scase, 1995;
Wilkinson, 1999; Marlow, 2000a). Since the expansion of the sector in the 1980s, there
has been a growth in scholarly activity investigating both theoretical aspects and
practical issues relating to self-employment and smaller Žrm ownership (Stanworth
and Gray, 1991; Store y, 1994). Until re c e n t l y, however, such re s e a rch has rare l y
conside red the manner in which labour is managed in smaller Žrms. This is puzzling
given that, even in early commentaries, it was noted that employee relations in such
firms diff e red considerably from those of their larger counterparts (Ingham, 1970;
Bolton, 1971, Scase and Goffee, 1980). While it may have been possible to argue that
this disinclination to examine labour management in smaller Žrms arose in the past
because of the marginal importance of such enterprises as employers, this has not been
the case for some time. Indeed, the most recent Workplace Employment Relations
Study in 1998 conŽrms that the majority of private sector labour is employed within
the smaller Žrm sector (Cully et al, 1999). Yet, despite the importance of the sector as an
employer, the approaches undertaken to managing labour by smaller Žrm owners, and
the experience of working within such Žrms, remains largely unexplored (Scase, 1995).
Rega rding the lack of interest in employee relations in smaller Žrms, it is suggested
that the reluctance to investigate arises, to some extent, from the promotion and
sponsorship of the sector by successive Conservative governments during the 1980s
and 1990s. These political administrations were largely unpopular with mainstre am
industrial relations academics due to their sustained attack on established collective
institutions and processes that have formed the traditional basis of the analyses of
labour management in the UK (see Scase, 1995 and Marlow, 2000a, for consideration of
this debate). The study of the employment relationship has developed in complexity
and sophistication with an analytical focus on collectivity. Given this enviro n m e n t,
HUMAN RESOURCE MANAGEMENT JOURNAL, VOL 12 NO 3, 2002
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Regulating labour management in small Žrms
finding a place for the study of labour management in smaller firms, where the
emphasis is on owner prerogative, informality and individuality, has been challenging.
Although the literature in this Želd is limited, the evidence generated has informed a
number of theoretical analyses that underpin the context for this debate. A relatively early
analysis of the smaller Žrm employment relationship suggested that the size of the
workplace and the ensuing proximity of the employer and employees acted to ensure
harmonious industrial relations – demonstrated by the lack of recorded industrial conict
in the sector (Bolton Committee Report, 1971). However, the ‘harmony thesis’ is now
deemed to be both overly simplistic and inaccurate in the light of more recent evidence
and argument. Rainnie (1989), for example, dismisses the harmony thesis, arguing instead
that the employment relationship in smaller Žrms was determined by the market context
of the Žrm, in relation to larger organisations. This analysis is insightful as it draws
together issues of size and market positioning and, to some degree, recognises the
hete rogeneity of the sector, but has since been criticised for being overly deterministic
(Ram, 1994). Goss (1991) qualiŽes such economic determinism with a greater focus on how
economic positioning and the social relations of production interact with preferred owner
control strategies to generate a particular employment relationship within smaller Žrms.
T h e re has been some criticism of this thesis, given the manner in which Goss
develops distinct typologies of owner strategies drawn from the market position of the
firm and employers’ relationship with labour. It has been argued that there is
considerable overlap between identiŽed owner types (Ram, 1994), which are overly
restrictive in their capacity to recognise the nuances of heterogeneity while overgeneralising. More ove r, the ref erence to owner ‘strategies’ is inappropriate in that the
employment relationship is emergent and exible – given the dynamic interaction of
market conditions and social relations – rather than an outcome of formulated strategic
intent (Marlow, 2000b).
Focusing his analysis on the negotiated nature of the employment relationship in
smaller firms, Ram (1994: 150) argues that previous studies failed to ‘convey the
ba rgained nature of life on the shop oo r, the extent of mutual dependency between
workers and management and the importance of informal accommodation’. It is
a rgued that generalised labels such as ‘autocracy’ or ‘harmony’ are simplistic; they fail
to recognise the complexity and diversity of the employment relationship in smaller
Žrms, which is likely to be ‘characterised by diffuseness, a high degree of informality
and considerations beyond the cash nexus’ (Ram, 1994: 160). In his analysis of the
employment relationship in smaller Žrms, Ram does not dismiss market constraints but
argues that these alone do not dictate approaches to managing labour. Rather, owners
and employees devise a variety of negotiated agreements which are uid and exible
and underpin an employment relationship that recognises both social mores and
economic imperatives.
While there are a number of competing analyses re garding the context of employee
relations within smaller Žrms, it is possible to suggest that one generalisation might be
cautiously applied: informality re g arding labour management compared to larg e r
Žrms. As Ram (1994) notes:
...as Žrm size increases, the tendency towards rational and burea uc r a ti c
forms of organisation will be more pronounced. The growth of autocracy
that accompanies Žrm size is likely to lead to a highly regulated workplace.
Ram, 1994: 162
Hence, as the firm grows, it develop s form al, identifiable policies, rules and
regulations to deŽne and control the employment relationship (Wynarczk et al, 1993).
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Susan Marlow
It would, however, be too simplistic to argue that formality deŽnes the employment
relationship in larger Žrms. From case study evidence (Beynon, 1973; Westwood, 1986),
and more recent commentary on the changing nature of the employment re lationship
(Ge a r y, 1995), it is evident that labour in larger firms is able to, and indeed does,
informally manipulate the labour process. Webb and Palmer (1998), in an analysis of
workplace ‘fiddles’, find employees able to ‘make time’ and evade management
surveillance; Elger and Smith (1998: 185) refer to the need for supervisors to construct a
‘mandate to manage based on a tacitly negotiated pattern of qualiŽed compliance’.
Howe ve r, while there may be the potential to negotiate informal space in the labour
process of larger Žrms, this is usually reported in the context of subversive behaviour
which is constrained by formality. Thus, terms and conditions of employment are
formally contracted so both management and labour have recourse to a set of ru les,
should they feel it appropriate to utilise them. More over, in larger Žrms the presence of
HR professionals, who can be called on to formulate policy and apply rules and
regulations, facilitates a more ‘arm’s length’ or anonymous application of formality
which emphasises bureaucratic rationality.
This is in contrast to the situation of the smaller Žrm, where informality is more
likely to pervade in that such Žrms are less likely to have formal policies in place in the
Žrst instance. This arises as owners rarely possess the specialist knowledge to construct
such policies or the inclination or res ources to employ professional HR managers for
this task (Wyn a rczk et al, 1993; Cully et al, 1999). Further to this tendency toward s
informal policy and practice is the fact that the owner him/herself is likely to work
alongside or in close proximity to employees as well as actually managing the
employment relationship (Ram, 1994; Marlow and Patton, 2002). This is advantageous
in creating an environment of fraternalism (Goss, 1991) and the myth of a share d
market position, but the team analogy is vulnerable on any occasion when ownership
authority must be re in forced. Evidence would indicate that, rather than risk disru pting
the ‘team’ environment, small firm owners resist using formal policy or practice,
preferring instead a negotiated solution to employment-related issues which avoids
overt conict or workplace dissonance (Atkinson and Storey, 1994; Moule, 1998).
It should be noted that exceptions to such informality will always be evident. For
example, Bacon et al (1996) explores the adoption of new management strategies such
as HRM in smaller Žrms and Žnd an association between the use of HRM and gre ater
formali ty, but this is comparatively rare within the extant literature. So, while there are
many differing approaches to processes and policies utilised in managing labour in
smaller Žrms, these are largely underpinned by informality.
Such informality is now being tested by contemporary Labour administrations
which have recognised existing European directives, strengthened current employment
rights and also introduced new collective and individual provisions through the
Employment Relations Act 1999 (ERA). For a sector largely steeped in informality, this
regulation could challenge the typical manner in which many smaller Žrms manage
their labour.
To explore these issues, this article will consider the current debate pertaining to
regulatory constraints on the operation of smaller Žrms. The scope of new re gulation
and the intent of the ERA, as it might affect smaller firms, will be explored. This
discussion will then be illustrated with empirical evidence drawn from a study of
smaller Žrms in the East Midlands. The evidence will encompass both employer and
employee views on the legislation. To conclude, the impact of increasing labour
regulation in smaller Žrms will be discussed and policy implications considered.
HUMAN RESOURCE MANAGEMENT JOURNAL, VOL 12 NO 3, 2002
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Regulating labour management in small Žrms
THE GROWTH OF REGULATION
One of the greatest constraints on the start-up and growth of smaller Žrms within the
UK economy is alleged to be state regulation (Thompson, 2000). In response to pre ssure
to relieve smaller Žrms from regulatory pre ss ures, the Better Regulation Task Force was
established in 1997 with the aim of advising the government on the quality and impact
of regulation. In conjunction with the Small Business Service, the task force has
p roduced a number of advisory guideline publications focused on helping smaller
firms cope with regulation and making compliance as simple as possible (see, for
example, Cabinet OfŽce, 2000).
Despite such assistance, a recent membership survey by the Federation of Small
Business (FSB) enabled the compilation of a dossier of information on regulation which
it claims is stifling business grow th. While noting financial compliance costs,
res p onden ts also complaine d of the time and physical burde n of o bserving
government regulation (Federation of Small Business, 2000). Based on the arguments of
smaller firm pre s s u re groups and recent media commenta ries, there is a stro n g
i m p ressi on t hat regu lato ry constraint s are having a delet erious effect on t he
performance of the sector (OldŽeld, 1999). There is no indication from groups such as
the FSB or Institute of Directors that regulation might be deemed to be an opportunity
to introduce change in worki ng processes, invest in technology or employee
development such that compliance costs may by more strategically incorporated into
the labour process. Equally, there is no evidence that smaller Žrms themselves perc eive
regulatory compliance as an opportunity for change. Rather, it would appear to be seen
as an impediment to autonomy (Winters and Nolan, 2000).
R e g a rding employment regulation historically, the UK has been notable for the
adoption of a voluntary code of regulation, agreed primarily between trade unions and
employers. The state has reluctantly engaged with regulation in the past when
voluntarism has failed to prevent disruption within the economy as, for example, during
the period of economic constraint and industrial unrest in the 1960s which underpinned
an earlier attempt at regulation – the Industrial Relations Act (1971). However, any
encroachment on voluntarism by the state has previously led to a substantial level of
resistance to such interference from both management and unions, making such
regulation difŽcult to enforce. So, prior to the 1980s, the state pre fe r red to inue n c e
labour management policy and practice through example in its role as the employer in
the public sector, rather than as a formal regulator (Farnham and Pimlott, 1995).
It is evident that successive Conservative governments since 1979 continued this
stance in the public sector, but also formally regulated the employment rel a ti on s hi p
with a particular legislative focus on constraining and controlling the power of trade
unions (for an overview see Deakins and Morris, 1995). Given the environment of UK
voluntarism, Conservative governments did not deregulate a formal system of labour
management but utilised a rhetoric of deregulation to promote managerial prerogative.
This focused on the removal of basic, protective rights for individuals already at the
ma rgins of the labour market, and for others the constraint of collective representation
and protection through trade unions.
However, it remains debatable whether Conservative government policy initiatives
we re that critical to the viability of new, smaller Žrm start-ups and decisions to employ
labo ur. The limited evidence relating to terms and conditions of employment in smaller
Žrms indicates that they are substantively poorer than those in larger businesses, and
that this situation existed prior to government policy to dismantle protective legislation
for individuals and constrain union power (Ingham, 1970; Scott et al, 1989; Earnshaw et
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Susan Marlow
al, 1998; Cully et al, 1999). Consequently, government initiatives to deregulate mere ly
acted as formal approval for a well-established approach to labour management,
al ready prevalent within the smaller Žrm sector.
Contemporary Labour administrations may, however, challenge this informal
management of labour withi n smaller firms. There has been a commitment to
i n troduce a number of regulatory initiatives to offer greater employee pro te c t i o n ,
including smaller Žrms. The implementation of a national minimum wage (NMW)
incited some dire predictions of large-scale smaller Žrm failure due to increased labour
costs (see extensive discussion by the FSB and Institute of Directors). The Low Pay
Commission (2000) does not support this belief, noting that:
...managing such an increase [in the wage bill] has not been without pain,
especially for smaller businesses. Generally, however, the effects have been
transitional and one-off, and most Žrms affected have been able to adjust.
Low Pay Commission, 2000: 6
Rega rding European directives, the sector was not affected by the Works Council
Directive, as this currently applies only to multinational enterprises. The Working Time
D irective, however, imposed constraints on the hours that any individual could be
compelled to undertake within a working week plus minimum holiday entitlements
and health protection (although this Directive is not directly enforceable, as technically
its application to the UK is covered by the interp retation in the Working Ti m e
Regulations, 1998). Yet, because of the use of variable weekly averages, exempt
occupations and employees’ opt-out waivers, the manner in which the UK has adopted
this directiv e has largely minimised its impact beyond imposing a short- term
administrative burden.
So, since the election of the Labour government in 1997, the smaller Žrm sector has
had to absorb a national minimum wage, EU regulations and new provisions on the
terms and conditions of employment as articulated by the ERA. The ERA has been
in troduced in stages since 1999, with its individual provisions affecting all Žrms, while
the collective provisions affect those Žrms employing more than 20 people. The aims of
the new legislation and the amendments to existing provision can be divided into two
major elements: those pertaining to collective employment rights and trade unions and
those concerning the individual at work. Regarding the former, since June 2000
1
statutory recognition for trade unions is compulsory, in most cases, where at least 50
per cent of the workforce are in membership, or where a ballot conŽrms that a majority
of those voting and at least 40 per cent of those entitled to vote wish the union to be
recognised. It is now unlawful to discriminate against an employee for taking part in
2
union activities or, conversely, for non-membership of a trade union.
Initiatives affecting the individual include new protection from unfair dismissal, the
reduction in the qualifying period to claim unfair dismissa l and increasing the
3
maximum award from employment tribunals from £12,000 to £52,600 in such cases.
The government has offe red support for ‘family-friendly’ policies and impro ve d
provision for maternity leave, protection of contract on returning to work after such
leave and reasonable time off for domestic emergencies. The Act also makes speciŽc
reference to the promotion of social partnerships at work (for further details of the ERA
see Lockton, 1999.)
It is apparent that, for a sector steeped in informality reg a rding the management of
labo ur, these new regulatory provisions could present signiŽcant challenges. While it
may be the case that the UK economy is one of the least regulated in the world
(Cabinet OfŽce, 2000), recent changes have moved the economy away from this point
HUMAN RESOURCE MANAGEMENT JOURNAL, VOL 12 NO 3, 2002
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Regulating labour management in small Žrms
to one where regulation is now alleged to be excessively burdensome to smaller
employers (Thompson, 2000; Blackburn and Hart, 2001). Undoubtedly, the adoption of
E uropean directives and the regulatory initiatives of successive Labour governments
since 1997 has strengthened this perception, given the context of change over time.
Larger Žrms, with their more sophisticated employment practices and with recourse to
p rofessional HR management, are better placed to deal with such change compared
with their smaller counterparts whose lobby groups claim that the growing re gu l ato ry
b u rden and compliance costs seriously constrain performance (Federation of Small
Business, 2000).
However interpreted, it remains that regulatory compliance has increased over
time and is deemed to be challenging, particularly to smaller Žrm owners. A ga i n s t
this backgrou nd, wit h re f e rence to the argu ments su rrounding re g u l a t i o n ,
informa lity and emplo yee right s, an empiri cal study of the awarenes s and
understanding of new employment rights was undertaken. A common critique of
much empirical re s e a rch undertaken within the smaller firm sector refers to the
tendency to focus on the owners’ perception of the business (Curran et al, 1993). In
recognition of this, the study also presents evidence from employees re garding their
experience of working in smaller Žrms and their understanding of the implications of
new employment rights.
METHODOLOGY
A comp rehensive database of smaller Žrms in the East Midlands held by a local Centre
for Enterprise was utilised to identify the sample of manufacturing businesses for this
s tu dy. There is no commonly agreed deŽnition of what constitutes a ‘smaller ’ Žrm ,
either in employment terms, or on the basis of other key business characteristics (see
Store y, 1994). From the extant literature, it is apparent that quantitative descriptors
based on employment numbers have been favoured to deŽne Žrm size, but it is now
a rgued that this may be overly simplistic, failing to recognise the heterogeneity of the
sector (Curran and Blackburn, 2001). It has been suggest ed that the size of an
organisation might be more usefully gauged from a qualitative assessment which
might then be used to create a taxonomy. For example, Curran et al (1993) asked
respondents to describe their Žrms in terms of size and, using this grounded deŽn ition,
built a wider template of what it meant to be small to those particular Žrm owners.
B rowning (1997) suggests that:
T he re are many ways of determining whether you work for a big business
or a small business . Big compan ies manage international curre n c y
uctuations, small companies don’t have change for a twenty... If you have
a magnetic swipe card to let you into the building, it’s a big company; but
if you have to fork the key out of the cat litter by the back door, it’s a very
good bet that it isn’t.
Browning, 1997: 82
For this particular study, the size re fe rent was based on employment and sector
characteristics – that ‘in manufacturing, firms with fewer than 200 employees are
conside red small’ (Scase, 1995: 580) – and by then asking each owner interviewed to
designate a size characteristic to the Žrm. Respondents used a range of descriptors
re g a rding Žrm size, including ownership stru ct ure, market position, workplace size,
owner salary, turnover, proŽt and age. The descriptions used were a useful reminder of
a variety of perceptions that exist regarding Žrm size but overall, based on the issue of
employee size, sector context and respondent perception, the firms that finally
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Susan Marlow
constituted this sample can be described as smaller rather than larger within their
sector or market.
The manufacturing sector was pre fer red for this particular study. This was a locally
funded study focused specifically on the East Midlands area where, despite the
expansion of the service sector on a national scale, manufacturing has dominated the
local economy over time (Leicestershire Economic Research Partnership, 2001). The
intention is not to generalise the Žndings on a national scale but rather to highlight
local issues as a contribution to wider debate. More ove r, it is argued that new forms of
regulation are likely to have a substantial impact on this sector for a number of re asons.
First, manufacturing Žrms are most likely to depend on full-time labour with gre ater
continuity of employment where employees work in close proximity to each other and
there is a stronger tradition of collective communication and action (Noon and Blyton,
1997). This is in contrast to service sector employment which is dominated by women
working in more fragmented patterns (Bradley, 1999). So, while a number of the new
initiatives, such as the Part Time Workers Directive and work/life balance policies may
be more relevant to women working in marginal employment, the evidence would
suggest that, for a range of reasons, these employees lack confidence in asserting
employment rights (Cockburn, 1993; Adkins, 1995). Manufacturing labour, however,
because of the employment environment and working conditions, might be more
aw a re of new provisions and make greater use of them. Hence, while the impact of
regulation might be a little narrower in such Žrms, it might be expected that employers
and employees would be more sensitive to the implications of greater employment
regulation, making this sector is a good test case of awareness and effect.
Secondly, a central tenet of the ERA in particular is that of trade union recognition. The
trade union movement draws it strengths from manufacturing and the public sector.
Given the provisions within the Act that facilitate organisation strategies and compulsory
recognition it can be argued that, if unions intend to expand re cruitment strategies into
smaller Žrms, it would be logical for them to focus, at least initially, on a traditional area
of strength ie manufacturing. Finally, it is well recognised that manufacturing has been
experiencing a long-term decline since the 1970s and recently has been detrimentally
affected by the strength of sterling (Edwards, 1995; Thompson, 2000). Accordingly, it is
a rgued that it is pertinent to ascertain the views of the owners and labour in
manufacturing Žrms regarding greater regulation in the light of such pressures.
Here we draw on the responses of owners and/or senior managers of 44 Žrms and
71 employees meeting the sample criteria. The interviews were conducted during the
winter and spring of 1999-2000. This was considered an apposite time to conduct this
resea rch, given the level of debate that had ensued between employers’ organisations
and the TUC in shaping the Žnal legislation and consequent media attention given to
both the new national initiatives and European directives. At the same time, local
agencies such as the chambers of commerce, Business Link and private consultancies
w ere drawing attention to these changes, and the FSB was actively seeking the opinion
of members re ga rding regulation overall. Hence, the issue enjoyed a high proŽle and
the study aimed to assess the awareness of the new initiatives, perceptions of the
impact of such and any changes that had been made or were being contemplated.
Two questionnaires were used to develop a comprehensive analysis of key aspects of
labour management within the smaller Žrm setting. The Žrst was sent to each respondent
prior to the personal interview and contained 32 ‘closed’ questions which established the
characteristics of the organisation but did not anticipate any issues within the consequent
schedule. The second, lengthier, questionnaire was administered during the course of
face-to-face interviews. It consisted primarily of open-ended questions, which enabled
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Regulating labour management in small Žrms
the rese archers to probe respondents regarding their particular approaches to managing
labour, how these had developed over time and how they might change in the light of the
new regulation. The interviews with the owners took, on average, between two and three
hours and were all undertaken on Žrm premises. By using this dual approach it was
possible to gain a clear picture of the structure of the Žrm before investigating speciŽc
issues relating to the central re search questions.
The 71 employees were approached, with the knowledge of the owners, during
formal breaks from production or after work. These interviews lasted between 30 and
45 minutes and were constrained by the need for respondents to return to work or go
home. Those willing to assist were asked to complete a questionnaire that established
sample characteristics and ascertained employment histories, and were then given the
o pportuni ty to offer their views on workin g within sma ller firms and their
understanding of the impact of new regulations. It is unfortunate that it was not
possible to spend as much time with employees as employers; this was an instance of
the resea rch setting intruding into pre fer red outcomes. However, although a narrower
range of issues were discussed with employees, a central core of factors were explore d
and could be compared usefully with the Žndings from employers.
THE EMPLOYERS’ PERSPECTIVE
When questioned about regulation of the employment relationship, the gre a te s t
proportion of owners (41 per cent) indicated that the current level of regulation was
‘about right’. However, only slightly fewer (38 per cent) believed there to be overregulation. A small percentage (7 per cent) thought the employment relationship was
under-regulated, while the remainder (14 per cent) were unsure. A sizeable minority of
owners were either unaware (29.5 per cent) or only ‘vaguely’ aware (11 per cent) of new
regulation, including the ERA.
Employers and the Employment Relations Act
Whe re necessary, the key elements of the new provisions were outlined in written form
to the respondent, with the majority (65.9 per cent) being of the opinion that there were
no speciŽc regulations that were likely to prompt the Žrm to change existing polices or
i ntroduce new ones. Explanations of the lack of anticipated impact generally focused
around two themes:
l The Žrms in the sample employed few women. Where they were present, they were
mostly involved in ofŽce-based tasks, which could easily be covered by other staff,
rather than key production roles. This would limit the impact of the increased
maternity leave period. The exceptions to this were textile Žrms where the majority of
employees were female, but here the basic wage was low so it was anticipated that
full provision would not be taken, as women would be anxious to return to work to
be ne Žt from piece-rate pay.
l The take-up of the parental leave entitlement was unlikely to be problematic, given
that very few workers could afford to take long periods off work without pay. One
respondent in this group also emphasised that his Žrm already followed the gist of
the regulation, so that the details should cause little disruption:
We have appropriate maternity cover, and if people need time off for
family things, we already do that. Everyone covers for each other. We’ve
not had a time when people have taken advantage of this, so it hasn’t been
a problem.
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Susan Marlow
Implicit in this are the ideas expressed by many respondents during interviews of
the business as a ‘family’, in which context workers were unlikely to take advantage
of new provisions that would harm the business. Two respondents overtly expre s sed
doubts that workers would make use of the new provisions, because they were
unlikely t o know of their new entitlements (which was indeed confirmed by
employee evidence):
If someone wants to take advantage of these n ew provisions, we
couldn’t stop them. I’d like to know how they’re going to Žnd out about
them, though.
Of course, one path to such kno wledg e might be throu gh trade unio n
re presentatives. However, re ecting other studies of this area (Scott et al, 1989; Rainnie,
1989; Atkinson and Storey, 1994), very few Žrms recognised a union, with only three
(6.6 per cent) having a recognition agreement. This re q uires further qualiŽcation; even
though a union was recognised, this was not for collective bargaining purposes but
because the Žrm recognised union-agreed terms and conditions. Union re presentatives
merely ensured that these were observed and acted as a communication conduit. None
of the owners concerned had any problems with union recognition; when the issue was
explo red with the remainder of the sample, there was a notable degree of pragmatism.
When asked how they would react to a recognition bid, there was a high degree of
scepticism that this would ever occur, as owners could not imagine what employees
could gain from such a tactic. If a bid was successful, owners claimed it would not be
problem as they were doing the best they could re ga rding terms and conditions, so a
union presence would only create ‘false divisions’ between themselves and employees
without achieving substantive improvement. A few respondents had strong negative
feelings on this point, with one summing up the sentiments of this group regarding
unions and regulation in general:
I’ll never be told what to do by a bloody trade unionist; this is my
business... To me, a man operates a grinder. If you’ve only got two
grinders, and one’s a young guy whose wife has a baby, how the hell can
you let him go off for weeks? If legislation strangles me, I would convert
the business into something that employs less people. If they bring law
and legislation that wraps people in cotton wool, it’s difŽcult for me to
compete in the outside world. If [the government] make it more difŽcult I
would just throw it out the window...it just wouldn’t be worth my while;
we’ re skating too close to the wind now.
R eg arding European directives, the Working Time Directive (WTD) was discussed.
With the excepti on of two respondents, owners asked to be ‘reminde d’ of its
p rovisions. None felt that their Žrms would be affected by this regulation re garding
working hours, holiday entitlements or health protection, and no-one had asked
employees to sign a waiver. It was stated that excessive working hours were not a
consistent feature of the labour process; in fact, owners felt that employees wanted
m ore work, with one owner re ecting this wider sentiment:
Our problem is not too much work; it’s not enough...when we’ve got
plenty of it they want to work as much as possible, and I won’t stop them’.
This opinion was related to job security in that ‘plenty of work’ was linked to
level of orders on the book rather than a wage maximisation strategy. Indeed,
majority of respondents paid considerably above the national minimum wage,
exception being the textile manufacturers who observed minimum levels. Hence,
HUMAN RESOURCE MANAGEMENT JOURNAL, VOL 12 NO 3, 2002
the
the
the
the
33
Regulating labour management in small Žrms
viability of the Žrm was associated with the level of orders, so pre ss ure to produce was
taken as benchmark of Žrm health.
Nearly a third of the respondents (15) indicated that new regulations had prompted
some change in business policy. Of these, the majority re fer red to the formalisation of a
range of pro ce d ures in relation to issues such as contracts, grievance, discipline and
dismissal. For example:
I know about the Žrst one [absence for domestic emergencies]. We’ve got
to get more professional in implementing what this means, writing it
down more, being more formal.
The unfair dismissal amount; we need to look at areas related to that.
We’ve already increased our insurance amount for that [and] we’re
reviewing the contract of employment and grievance and discipline...
We need to formalise everything we do...
Although there was recognition of the need to tighten formality, there was a still a
general reluctance for owners to use such policies, as this would disrupt the informal,
negotiated nature of the employment relationship, as identiŽed by Ram (1994). Owners
tended to project discipline/grievance problems onto the individual concerned, rather
than perceive them as an organisational issue or deŽcit:
If there’s a problem we have a talk to the guy. Normally the chap would
leave if there’s a problem.
There were a number of refe rences to difŽcult people who ‘didn’t Žt’ or ‘were a bit
odd’ – it was deemed preferable to try to lull the transgressor back to acceptable
behaviour rather than go down any formal route that would emphasise divisions
between owners and employees:
Yes, we have sharpened up but we still like to sort things out as friends if
possible, keep it low key; it generally works better for all of us like that.
R eg a rding future re c ruitment strategies in the light of the greater freedoms and
p rotection for workers contained in the Act, the owners expressed a pre fe rence for
changing selection tactics. For smaller Žrms with little, if any, spare labour capacity,
c a reful selection of staff would be re q u i red to limit the effects of the new leave
entitlements in particular. Five respondents fell into this category, although some were
clearly prep ared to be more candid than others. As one observed:
I think in the future, with people wanting time off, because we can’t
employ more people than we need, if someone wants to take a month off,
we can’t do it. It would be impossible without it costing us a lot of money.
In the future we would look to employ people who wouldn’t create us a
problem. Quite honestly, I think these bills [that are] coming out will make
us exclude a lot of people we would normally employ.
In any reassessment of re c ruitment practice, the Act’s extended maternity leave
entitlement and other family-friendly elements focus most attention on female workers:
We will have to think about our re c ruitment policy where women are
concerned.
And rather more bluntly:
We only have the girls in the ofŽce. The others would cope if they went off ,
but they are either older or bits of kids, re al ly. It might make me think
about having ofŽce people who are past it.
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Susan Marlow
To summarise this section, there was no strong support for the ‘over-regulation’ thesis
regarding employment issues, with the sample being split almost equally on this issue.
This should be qualiŽed with the observation that most owners were not knowledgeable
about the aims of the recent regulatory changes and had not experienced substantial
compliance burdens. However, after consideration of the possible impact of the regulation
discussed, there was little indication that respondents felt any urgency to change their
stance; rather, they described adjustments at the margins. Some women of a certain age
would not be considered when rec ruiting, and there was recognition of the need for
greater formality in terms of ‘writing things down’ and utilising greater insurance
protection against tribunal action. A minority of owners who felt more strongly about the
potential intrusion of regulation stated that they would be prepared to change the shape
of the business, or even consider closure, were their ownership pre rogative to be
constrained beyond the bounds they felt were reasonable. However, this was not a
common response; the dominating feature was pragmatism rather than hostility.
The impact of regulation
The majority of respondents thought that adopting the new provisions would (52.3 per
cent) or would possibly (15.9 per cent) have adverse effects on business performance.
The loss of staff time as a result of the various family-friendly provisions was the
g reatest worry, mentioned by more than half (59.1 per cent) of Žrm re pre sentatives.
Distinctions were made between different types of staff: ‘You can gets temps for the
ofŽce, but on the shopoor it would be difŽcult.’ In areas where cover was difŽcult to
arrange, respondents were generally worried about key workers taking sustained
periods of time off but, exceptionally, the reverse could also be true:
We do give a week’s paternity leave anyway. If they wanted a block of time
off, we could get temps, but if it was here and there, it would be difŽcult.
Other provisions of the Act received signiŽcantly less attention. Five re sp on de n ts
mentioned the increased amount of employment tribunal settlements, emphasising
both the prohibitive amount of the potential pay-out and the implications for the
treatment of unproductive workers. Thus:
...the payout for tribunals is going to stop people from settling before court,
so it would be a lot more costly, and could be disastrous for some Žrms.
The concern that we have is that we will be forced to keep underperforming employees because of the change in unfair dismissal fro m
two [years] to one year, so we will probably go overboard in our caution,
and that could mean we have under-performance that we can’t take
action over.
R e ga rding the Working Time Directive, this was not considered an issue. Owners
repeated their belief that employees wanted more work, not less, while a small
proportion (11 per cent) did refer to the opt-out waiver as an option, should excessive
working hours ever become an issue. However, none were using it, or about to use it,
at the time of interview.
To summarise this section, after consideration of recent regulation it was agreed that
the re was potential for a negative impact on the Žrm, particularly in the challenge of
managing fragmented employee absences, speciŽcally those of key workers. The other
concern focused on the increased level of tribunal compensation and the manner in
which consideration of this might constrain owner pre rogative in managing labour.
The Working Time Directive was seen as largely irrelevant because the owners had
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Regulating labour management in small Žrms
little awareness of it and, on closer examination, firms did not have the consistent
volume of work that made the regulation applicable.
THE EMPLOYEES’ RESPONSE
Having considered the owners’ perceptions of the new regulation and any effect it
may have on current business practice and performance, the views of employees are
now considered. Table 1 gives a breakdown of sample characteristics.
TABLE 1 Sample characteristics
Male
72%
Female
28%
Skilled
53%
Semi-skilled
36%
Unskilled
11%
Modal range of current employment
2-3 years
Modal age range
26-30 years
n = 71
Each employee was asked a series of questions re g arding employment regulation,
beginning with their awareness of recent changes (Table 2).
TABLE 2 ‘Were you aware that new employment rights are now in force?’
Yes
20 (28%)
No
22 (32%)
Vaguely
29 (40%)
n = 71
Each respondent was then given a brief outline of the rights and asked to indicate
which might be of interest to them. It was noticeable that substantial interest was
elicited by the rights affecting the individual: 70 per cent expressed interest in the
right to sue for unfair dismissal after 12 months’ employment and 86 per cent
supported the right to have time off for domestic emergencies. There was little intere s t
in unpaid parental leave, with only 11 per cent noting it as a pertinent issue. It was
app a rent that the loss of income was critical and there was some awareness re g a rdi n g
the impact on co-workers:
It’s a nice idea but who could aff ord it? It’s a waste of time talking about it.
Well, you’d have to have saved for that and it wouldn’t make you very
popular with the others; someone has to do your job as well...
It was also notable that new rights on trade union recognition and representation
w e re of negligible interest. This was not due to anti-union sentiment, but rather an
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Susan Marlow
acceptance that unions would struggle to gain recognition and there would be an
adverse reaction from employers if the labour force was to exhibit support for unions:
I think a union would be helpful for us, but who here is going to go Mr A
[the owner] and say that we want a union? You might as well leave. I
mean, he might say that a union wouldn’t be a problem but that would
change if there was any real support for one.
In recognition that the context of the firm shapes the employment re l a t i o n s h i p ,
workers were asked if they would rather work for a smaller or larger Žrm and their
reasons for such a decision. The responses favoured the latter, with the reasons given
focusing on greater job security and better pay and conditions. The beneŽts of gre ate r
anonymity were also noted:
You are always under the boss’s eye here. It’s not that I’m lazy but you
can’t even take a minute or have a bit of a chat; he watches you. It’s not
like that in a bigger place.
Those who expressed a pre ference for working in a larger Žrm were asked if they
were applying to such for alternative employment. None were doing so actively but
said that they were ‘keeping an eye open’. For those who pre fer red smaller Žrms, this
focused noticeably on the social aspect of employment, particularly their re lationship
with the owner and other workers:
She’s [the owner] great. If I need a bit of time off or I’m a bit late, she
doesn’t get on to me; she knows I can’t help it. I just make it up when I
can; you wouldn’t get that in a big place’.
For another employee it was the beneŽt of:
...working with a small group. We all get on and really understand the
business. I suppose you feel like you make a diff erence, re ally. We’ re not
just numbers; we help each other.
R e g arding European regul ation, this was just not considered relevant. When
dis cussing the Working Time Di rective, nearly a quarter (24 per cent ) of the
respondents thought it only applied to the medical profession, and none felt it was an
issue for them – not even those who regularly worked some overtime. Rather, they
re ected the owners’ views that they would like more work and certainly would not
refuse it. Were they to be asked to sign a waiver, none stated that they would refuse to
do so.
The employees expressed support for regulation that offe red them new rights but
felt that their particular circumstances, as employees of smaller firms, would be a
barrier to receiving the beneŽts of the new rights. Employees recognised the difŽc ulties
that taking advantage of rights such as parental leave, unplanned absences for
domestic emergencies or extended maternity leave would create for the employer and
co-workers. This was demonstrated by one respondent who re marked:
These new rights are a nice idea but it would be difficult to cover for
people; you’d end up doing two jobs, re ally.
Another employee thought that if her co-workers did take advantage of the new
bene Žts this could ultimately threaten the Žr m:
We need the effort. Mrs A [the owner] is always telling us that we must get
stuff out on time; if we couldn’t it could be really serious.
Eq u al l y, in a smaller Žrm any assertion of one’s rights might single you out as a
‘trouble maker’ with possible re percussions. However, while the majority of employees
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Regulating labour management in small Žrms
had expressed a preference for working in a larger Žrm because of better beneŽts and
g reater autonomy, this did not signify ignorance of the beneŽts of the smaller Žr m
envi ronment, particularly in cultivating particular personal relationships with owners
and co-workers to attain some discretion in shaping the employment re lationship.
DISCUSSION
From the evidence gathered re ga rding the impact of new regulations, it appears that
owners dealt with changes by either ignoring them, marginally changing existing
systems, amending re cruitment approaches to avoid those who may beneŽt from the
provisions or relying on employee ignorance and/or their reluctance to exercise their
rights. Employers were concerned with the provisions that affected the individual, with
the majority of the sample pragmatic regarding those relating to union recognition, as
they believed this to be an irrelevant issue. When prompted regarding the provisions of
the new regulations, most owners felt they were unproblematic but, when off e re d
scenarios of potential impacts of the new rights for employees, they expressed some
concern. For example, when asked a speciŽc question re g arding the impact of a key
employee taking a month’s parental leave, the employers had problems suggesting
how this might be resolved. After some more reflection and confirmation that, at
present, this is unpaid leave, they were conŽdent that employees could not afford to
take such an option. When informed that there were moves to consider making
pa rental leave a paid provision, this invoked a negative response about the destru ctive
power of regulation.
Wh e re enhanced maternity leave was concerned, this was not interpreted as a
challenge that would prompt changes in policies and practices to absorb the provision.
Rather, it would be managed by various staff members covering the absence on an ‘asneeded’ basis or by what might be described as a somewhat strategic solution in
assessing potential female employees for childbearing potential and selecting
a ccordingl y. For a number of textile Žrms in the sample, with a predominantly female
w o r k f orce, adverse affects might be expected; however, the characteristics and
problems of the industry supplied the solution. As basic pay was low – at national
minimum wage level – and enhanced through piece-rate work, those affected had
sought to return as soon as possible after childbirth to res tore income. At one factory a
number of women had smaller babies next to their workstations; the owner herself
managed the Žrm while babysitting her newborn grandchild so her daughter could
work unhindered.
Regarding the enhanced tribunal awards for unfair dismissal, it was acknowledged
that maintaining informality could be problematic. It was notable, however, that even
for those Žrms that had formal discipline and grievance proced ures the owners were
still inclined to keep their approach to dealing with such problems on an informal basis
by exploring the problem directly with the person. This would not be framed as a
form al warning or re c o rded but more as an informal, friendly word. This is a
contentious area for smaller Žrms if owners are not fully aware of the implications of
attempting informal, unre corded, negotiated solutions to problems.
In relation to the trade union issue, the three Žrm owners who recognised them had
no problems, finding them useful for regulating condit ions and as avenues for
communication. Where unions were no t present, the owners all believed that
recognition would be a hindrance to good employee relations in that unions create an
unnecessary divisio n between managemen t and labour. More o ve r, there was a
noticeable sentiment that the owner would feel ‘hurt’ if employees pursued this option;
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Susan Marlow
it would be taken as an insult to their management practices.Two owners were overtly
hostile to the idea of trade union recognition, claiming that they would ‘get rid’ of
anyone who articulated support for unions and would close the Žrm if any recognition
claim was successful.
Employees seemed to be very aware that the characteristics of the smaller firm
sector would shape their access to any new rights. While supporting the notion of
pa rental leave rights, when asked if they would take advantage of this none felt that
they would be in a position to do so as long as it remained unpaid, but it was not only
the wage issue that acted as a constraint. A number of employees claimed that they
could not consider taking such leave because of the impact on the Žrm. For some, this
was articulated as an awareness of the burden their absence would place on other
employees and Žrm performance but some felt that pre ssure would be put on them
di rectly not to pursue this option.
In t e re s t ing l y, when asked if they felt whether ‘a trade union presence would be
useful or not, to improve the terms and conditions of employment at this Žrm’, the
majority of employe rs w as supportive of a union pres enc e but felt t ha t the
characteristics of the firms they worked for mitigated against this possibility. The
p roximity of owner, managers and labour ensured that any individuals supporting
union recognition would be known, and would risk personal re percussions as support
for unions would be interpreted as a criticism of the owner ’s management style.
For some employees, the proximity between themselves and their employer gave
them considerable insight into the state of the business; they recognised that,
particularly in marginal Žrms, the employment relationship was probably as good as it
was possible to be. If these employees wished to enhance terms and conditions, their
best option was alternative employment rather than pressu re to improve their curre nt
job. It was notable that the majority of the sample (58 per cent), when asked speciŽcally
if they would, given the choice, rather work for a larger Žrm or a smaller Žrm, stated
that they would prefer a larger enterprise because of the greater job security and
likelihood of better terms and conditions.
CONCLUSION
Labour management practices and policies in smaller firms have been somewhat
ignored by mainstream industrial relations academics and those with an interest in the
sector as a discrete area of study. From the evidence reg arding the analysis of labour
management in smaller Žrms, our Žndings support the notion of a socially negotiated,
informal employment relationship bound by market constraints as articulated by both
Goss (1991) and Ram (1994). This is not to suggest equivalence of power between
labour and owners, but rather a sensitivity to mutual dependence that facilitates a
greater degree of informal exibility in the terms and conditions of employment than
in those of larger Žrms. However, mutuality should not be exaggerated. In the manner
in which the em ployment relationship was established and supervised, owner
prerogative dominated and employees were aware of this situation. This was evident
by the comments re ga rding the manner in which the context of the Žrm intruded into
the possibility of taking advantage of new employment regulation. Employees felt they
would continue to manipulate their employment relationship as and where possible
and were aware that the success of this strategy depended on personal relationships
between owners and also between co-workers.
Owne rs were generally support ive of this informal, flexible employment
relationship and did not consider it subversive, as has been portrayed in studies of
HUMAN RESOURCE MANAGEMENT JOURNAL, VOL 12 NO 3, 2002
39
Regulating labour management in small Žrms
la rger Žrms. Rather, the ability to create a ‘family’ or team environment was believed to
be advantageous to both themselves and employees but owners did experience
problems with this approach when an employee did not observe the informal rules of
behavio ur. However, even in such cases, owners still preferred to approach the probl em
on a friendly basis rather than resorting to formal policy and pro ce d u re. There f ore ,
these Žndings suggest that the intrusion of employment regulation into this nebulous,
negotiated but tacitly hierarchical relationship should present a challenge. However,
this does not appear to be the case for a number of reasons.
Refle cting the ex isting, if limited, eviden ce re g a rdin g co mpl ia nc e wi th
employment regulation in smaller Žrms (Scott et al, 1989; Winters and Nolan, 2000;
Blackburn and Hart, 2001), owner ignora nce prevailed. There was only limited
a w a renes s and kno wledge of the full extent o f new regu latory provision, so
experiences of the impact of such were limited. When owners did give the matter
consideration re g a rding potential impact, awareness did not incite widesp re a d
anticipation of having to engage with significant change to labour management
policy and practice. Rather, owners identified solutions to potential challenges
through exible adjustments of the employment relationship at the margins, should
the need arise. There was a strong sentiment that this would not be re q u i red as
employees would not challenge the existing relationship and the evidence would
indeed suggest that this is an accurate assessment.
Drawing on employee sentiments, it would appear that business owners were
s e c u re in their complacency. While supporting the enactment of new rights, most
em plo yees felt that thei r position within t he labour market , as sma ller firm
employees, effectively excluded them from taking advantage of the changes. It would
therefore appear that the smaller Žrm owners in this sample would remain re l ati ve l y
s e cure in their ‘fire-fighting’ approach to employment regulation. There are some
dangers re g a rding unfair dismissal issues which may become a matter of concern and
it will be important to note changes in the number of cases brought to tribunal and
a w ards made.
Given the intention of the new regulation to promote greater fairness at work, the
persistence of most smaller Žrm owners’ ‘do nothing’ approach to regulation (Winters
and Nolan, 2000: 6), combined with the reality of being an employee in such businesses,
will mitigate against this legislation achieving its aims within this sector. Hence, there
sho uld be real concern among policymakers re g a rd ing t he p artial impact o f
employment regulation. This is also a salient issue, as evidence indicates that terms and
conditions of employment are poorer in smaller Žrms, which in turn ensures that they
are more likely to draw labour from vulnerable market sectors who would beneŽt from
added protection. The Žndings illustrate that the heterogeneous nature of the labour
market will undermine and constrain blanket provision.
One possible avenue to address this shortcoming is available to policymakers. A ll
the employers and employees in this sample were aware of the minimum wage
regulation and all employees were paid at least on this level, with most of the former
but few of the latter actually knowing the level. However, the concept was familiar
because of the level of publicity and debate that it had engendered. We re policymakers
to invest similar resou rces in disseminating accessible information re ga rding speciŽc
provisions, this would expand awareness and thus make regulation more relevant. It
would still remain debatable if take-up would expand substantially because of the
particularistic nature of the employment relationship in smaller Žrms. As argued by
Goss (1991), Ram (1994) and Moule (1998), the labour process in smaller Žrms is shaped
by a speciŽc relationship generated by the proximity of employers and employees.
40
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Susan Marlow
These relations of production then facilitate a negotiated social order within which
owners and labour reach accommodation re g arding appropriate employee re l at io n s
with differing degrees of owner pre rogative and employee autonomy. As has been
a rgued, this uid informality, while offering some beneŽts to both owners and labour,
does mitigate against employees fully utilising homogenous, formal re g ul a to r y
regimes; further resea rch is re qui red to explore this problem more fully.
Another option for policymakers is to support re s e a rch to gain clearer evidence
reg arding compliance cost and barriers. Recent Žndings from a wide-ranging survey of
the impact of employment regulation on smaller Žrms by Blackburn and Hart (2001:
764) suggest that ‘many business owners have a predisposition to criticise re gulations
and many of these reported effects are based on perception rather than experiential
e ffects’. This is a critical element of this debate and re qu i res further examination so
policy evaluation can be generated that re ects the actual challenge of compliance.
Only then can appropriate policies be develo ped to encourage and facilitate
compliance and address the dual problems of ensuring that small Žrm owners observe
regulation and their employees beneŽt from it.
Acknowledgements
The author gratefully acknowledges the assistance of Alan Ryan of De Montfort
University for his contribution to this article.
Notes
1 The Central Arbitration Committee can still order a secret ballot if:
i. it believes that it is in the interests of good industrial relations;
ii. it believes or has evidence that a signiŽcant number of members do not want the
union to conduct collective bargaining; or
iii. it concludes that ‘there are doubts in relation to ii’ (Schedule 4 Para 22 (4)).
2 However, it might be argued that ss 137, 138, 146 and 147 of TULR(C)A 1992 already
achieved this. What the ERA has done is to change the deŽnition of ‘detriment’ to
include action (including failure to act) short of dismissal, thus reversing the House of
L ords interpretation in Associated Newspapers v Wilson and Associated British Ports
v Palmer.
3 This award is index linked so the original sum of £50,000 is currently £52,600.
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